CoreCivic sees volatility as 'Trump trade'

Attorney General Jeff Sessions reversed course from the previous Obama administration, telling the nation's 94 U.S. attorneys in a letter to "charge and pursue the most serious, readily provable offense." In recent years, there has been growing bipartisan interest in Congress that states and the courts should reevaluate lengthy prison terms because of the nations mass incarceration problem.
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After mounting a full recovery under the Trump administration, shares of Nashville-based prison operator CoreCivic have declined amid a volatile week for the president.

Shares of CoreCivic, formerly called Corrections Corporation of America, fell 8 percent in the past three days, surpassing the declines of the Dow Jones Industrial Average and the S&P 500. The Geo Group, also a corrections company, saw a 6 percent drop in the same time period.

Within the first four months of the Trump administration, President Trump issued an executive order calling for expanded immigrant detention centers and Department of Homeland Security said immigrants crossing the border would remain detained until cases are resolved.

Shares of CoreCivic, which had tumbled close to 50 percent in the fall, swiftly ascended, climbing from below $14 per share in October to $34 as of Tuesday afternoon. But, with the escalating investigations into ties to Russia threatening his agenda, CoreCivic's upward momentum has stalled. Shares closed at $31.57 Friday, after increasing 2 percent.

“CoreCivic was one of those stocks that was going to benefit greatly from 'the Trump trade,'" said Stephen Frohsin, a principal at Woodmont Investment Counsel in Nashville. "The companies that would benefit from Trump policies, those are the stocks that have sold off the most in the last couple of days."

The decline

There was a three-month period in 2016, when it seemed things could not get worse for CoreCivic.

The Department of Justice planned to end the use of private prison companies and the Department of Homeland Security was examining its outsourcing at immigrant detention centers. Presidential candidate Hillary Clinton, who had a lead in many polls, was calling for states to reconsider private prisons, as well. Protesters gathered in Nashville objecting to conditions at CoreCivic facilities, all while the company's stock price spiraled downward.

On Nov. 9, shares soared by 43 percent. By Trump's inauguration, to which CoreCivic contributed $250,000, shares were back to $28.

The company’s restored stature on Wall Street underscored the turning tide of federal criminal justice and a stricter stance on immigration under the Trump administration.

“The whole point of the (Then-U.S. Attorney General Eric) Holder memo and Holder policy was to reduce prison populations,” Christopher Slobogin, director of Vanderbilt Law School’s Criminal Justice Program, said. “It’s hard to see how the new Sessions policy will not increase prison populations.”

The federal prison population has been decreasing in recent years, falling to 195,000 from 220,000 in 2013, according to the Department of Justice. Highlighting the decline in her 2016 memo about the use of private prisons, former Deputy Attorney General Sally Yates credited Holder’s directives, which also included an emphasis on reentry and crime prevention.

Slobogin emphasized that Session’s most recent directive to prosecutors only applies at the federal level and the bulk of drug sentencing occurs at the state level. CoreCivic’s contracts with the federal Bureau of Prisons comprise just seven percent of its business.

Asked about the impact of the justice department's instructions and Trump’s executive orders on CoreCivic, spokesman Jonathan Burns said the company does not take positions on policies, but that its leaders are focused on adapting services to government needs. No new contracts have been issued to date with Immigration and Customs Enforcement, he said.

“Our core competency has been for years to be flexible and put our company in a position to be able to respond to the needs of our government partners, however or whenever they arrive,” Burns said.

That philosophy prompted the company to expand its business model in recent years, according to CoreCivic CEO Damon Hininger. Recognizing the shifts in criminal justice, CoreCivic added reentry services in 2013. So far, the company operates 25 reentry facilities nationwide that seek to help transition former offenders out of prison.

Regarding the stock market recovery, CoreCivic leaders have said that investors overreacted to the Yates memo. The memo cited a report by the Office of the Inspector General, which said contract prisons had a higher rate of safety and security incidents.

CoreCivic leaders said the report was significantly flawed in its approach. Confident shares would recover and that a new administration, regardless of party, would be more receptive and recognize the company's value to taxpayers, Hininger said he bought CoreCivic shares when their values were depressed.

“We have had a longstanding partnership with the federal government and with the Bureau of Prisons,” Burns said. “This is policy that has existed across presidential administrations on both sides of the aisle. It’s a very longstanding partnership."

Hininger's optimism has appeared on point. Even with a Department of Justice audit in April, describing understaffing and safety concerns at a CoreCivic facility in Kansas, the stock has mostly maintained its upswing.

Criminal justice reform

Critics of private prison operations expressed disappointment in the DOJ's reversal on outsourcing prison management. The decision is “unjustified and unconscionable,” said Alex Friedmann, managing editor of Prison Legal News.

Friedmann said the attorney general’s latest order for prosecutors is a setback for criminal justice reform at the federal level, but he does not anticipate it will damage momentum at the state level, which affects the bulk of the criminal justice system.

“It is a step back,” Friedmann said. “This is going back to the failed strategy we had before of imposing draconian sentences on people who don’t necessarily need them, just because we can.”

Criminal justice reform has bipartisan support, with Republicans, including Sen. Rand Paul of Kentucky, joining Democrats to reduce prison populations and their associated costs. That conservative leaders, including the Koch brothers, expressed their dissatisfaction with Sessions’ recent announcement bodes well for reform momentum in Congress, said Jessica Jackson, national director at #Cut50, an initiative aimed at reducing prison populations.

“There’s been a ton of will to get bipartisan reform passed,” Jackson said. “I don’t think Sessions’ announcement is going to quell that.”

It’s also possible that criminal justice reform will lose priority in Congress during the Trump administration, Slobogin said. Sessions was one of two senators who helped derail previous efforts to advance criminal justice reform. While Sessions no longer has a Senate vote as attorney general, the vote itself could become less likely.

“Basically, that whole movement stalled because of the Trump administration’s attitude toward these issues,” Slobogin said. “It helps immensely to have a president like Obama in office who was in favor of this kind of reform as opposed to a president who’s not.”

The Trump presidency has so far benefited the private prison operators, but the slide in shares this week illustrates the uncertainty of what is ahead for the administration's agenda and efficacy amid multiple investigations. Shares of CoreCivic have closely followed the president's ascent and the recent drop now mimics some of the doubt surrounding his agenda.

"There is some question as to whether some of those policies will come into place if the president is not around to see those policies put into place," Frohsin said.